The Future of Risk Management

Conventional wisdom has suggested risks are two-dimensional, in other words, risks should be prioritised based on their impact and probability.

However, there is a still a blind spot. Following this methodology suggests that two similarly rated risks have the same potential to destroy shareholder value. It doesn’t take into account the speed at which the risk will materialise or the relative potential to mitigate the risk. There needs to be a third dimension.

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My view is that applying the simple matrix above helps legal functions more effectively prioritise their involvement in activities like contract review. Not only does this improve prioritisation of potential risks, the business loves the approach. It increases the responsiveness of the legal function and, when applied on an individual contract (clause) level, it gives a far clearer picture of the risks within a contract, allowing them to make informed commercial decisions.